The motivation for the deal appears simple: Microsoft wants to provide the advertising industry with an Internet-wide advertising platform, as well as a set of tools and services that help its constituents generate the highest possible return on their advertising investments.
"The advertising industry is evolving and growing at an incredible pace, moving increasingly toward online and IP-served platforms, which dramatically increases the importance of software for this industry," Steve Ballmer, CEO of Microsoft, based in Redmond, Wash., said May 18.
The aQuantive acquisition represents the next step in the evolution of Microsofts ad network from its initial investment in MSN, to the broader Microsoft network including Xbox Live, Windows Live and Office Live, and now to the full capacity of the Internet, he said.
"Microsoft is intensely committed to creating a thriving advertising business and to partnering closely with all key constituencies in this industry to help maximize the digital advertising opportunity for all," Ballmer said.
Allan B. Krans, an analyst with Technology Business Research, told eWEEK that aQuantive brings Microsoft a tool set enabling clients to develop, target and execute an online advertising campaign.
"By improving its ability to provide a more comprehensive end-to-end ad platform, the company believes it will unlock significant value—several billion dollars worth over the next few years—by helping advertisers identify and take advantage of new ad opportunities. The aQuantive purchase will also provide Microsoft [with] access to a significant client base, which should help the company gain traction on its AdSense platform," Krans said.
This acquisition follows hot on the heels of similar moves by other companies. Advertising giant WPP Group is buying 24/7 Real Media for $649 million, while Google announced plans in April to acquire digital advertising company DoubleClick for $3.1 billion, and Yahoo bought the rest of Right Media for $680 million.
TBRs Krans said Microsofts acquisition of aQuantive will the companys largest ever, and is a departure from its traditional preference for developing core competencies internally.
"In the area of online services, Microsoft has clearly determined that it does not have the time to develop a comprehensive ad platform and must make acquisitions to supplement its core AdCenter product," he said.
"All the portals are intent on building their ad platforms into comprehensive one-stop shops for graphical, search-based ads as well as emerging ad opportunities in video and mobile, and Google and Yahoo clearly have a head start in the depth and breadth of their platforms as well as their considerable client bases," Krans said.
The acquisition also gives Microsoft increased depth in building and supporting next-generation advertising solutions and environments such as cross-media planning, video-on-demand and IPTV.
"Joining the capabilities of these groups is an important step toward our goal of becoming an industry-leading, Internet-wide advertising platform," said Kevin Johnson, the president of Microsofts Platforms and Services Division.
aQuantive was founded in 1997, has some 2,600 employees, and will continue to operate from its Seattle headquarters as part of Microsofts Online Services Business Services, Microsoft said.
aQuantives mission has been to leverage the power of digital marketing services and technologies to drive measurable results for clients, the company said. "We look forward to combining forces and bringing the value of our combined assets to bear for the benefit of advertisers, ad agencies and publishers," said aQuantive CEO Brian McAndrews.
The deal is expected to be completed in the first half of Microsofts fiscal year 2008 and is not expected to have a significant impact on the companys previously issued financial guidance.
TBRs Krans said a byproduct of the increased level of acquisition activity in the online advertising space is the rapid inflation of purchase prices. Google paid more than 20 times DoubleClicks earnings to acquire the company, and the purchase price for aQuantive represents 13 times aQuantives annual revenue.
"These multiples reflect both the large financial returns available in the online advertising market, and the huge market power of the current investors. Both Microsoft and Google maintain large corporate coffers, and are placing huge bets in order to better the futures of their respective online businesses," he said.